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Motor Claims Inflation: Perfect Storm 2024 Update

Updated: Jun 17

When Does a Storm Stop Being a Storm and Eventually Become the Weather?

Motor Claims Inflation: When Does a Storm Stop Being a Storm and Eventually Become the Weather?

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When it comes to Motor Claims inflation, Procurato knows the perfect storm has not subsided,

with an increasing trend of escalated frequency and severity of global risks, from BREXIT, the various ongoing conflicts, the fallout from the pandemic, and the potential 2024 UK/US simultaneous elections. We have looked at this topic several times under various “Perfect Storm” headlines.

However, as we head fully into 2024, we are starting to view this from the perspective of “When does a storm stop being a storm and start just being the weather?” Given where the market is and is projected to be, it is now relatively clear inflationary pressures on claims is just the weather forecast for the rest of the year.

Some of the same global impacts are as present as they were for the last few iterations of this paper, but now with added growth in climate change impact and Cybercrime and the new conflict between Hamas/Israel and the knock-on effects in the Red Sea. The Global crises are having persistent inflationary impacts on the cost of living, and these costs are similarly flowing through as further increasing costs for motor claims and accident repair.

To bring this to life, the ABI stated [1] insurers saw a further 16% increase on materials, 15% impact of labour and 46% on other costs (largely, driven by energy costs) at the back end of 2023. This drove action to protect profitability, Q3 2023 and beyond saw a further increase in motor insurance premiums of 29% [2]. This shows that the market is in a reactive rather than proactive state. To expand on this further, EY recently predicted [3] COR would land at 114.6% for the 2023 year-end, a significant increase on the mid-year projection of 108.5% back in June due to these cost impacts being heavier than expected and Insurers having to react.

One of the hottest topics in 2023, which shows how tough the PL motor market is right now, is both Zurich and RSA exiting the direct motor sector. Overall, what we have seen is the re-emergence of a number of insurers deciding what their “homeland” segments are, such as RSA acquiring DLG’s NIG Commercial book meaning DLG is a pure-play PL.

Claims cost inflation pressures are expected to continue, though experts currently predict that the market is going to broadly break even in 2024 with a COR of 100.4% [4], by Insurers adapting their pricing to combat these challenges with an estimated 10-16% increase in 2024 premiums anticipated, on top of the 47% increase during 2023 [5]. 

These insurance premium increases are causing major concerns for the everyday consumer. Based on research conducted by The Green Insurer and published by Insurance Times [6], of those asked, 51% of drivers were concerned about insurance premiums in 2023 and what that might mean for 2024. 2% of respondents gave up their vehicle to save on the costs associated with it. And 20% of respondents admitted to withholding information or falsifying information during the renewal stage, such as stating the vehicle was in an off-road, private garage, to avoid hikes in premium. As we reported last month, some are even choosing to drive without insurance due to the strain insurance costs are having on households already struggling with the general cost of living. Motor insurance has effectively replaced the cost of energy as the hot spot in household bills for many.

A primary consideration for Insurers is that the levels of premium increase being seen are not sustainable. Moreover, Procurato does not believe that an insurer with a COR north of 110% can price its way out of the situation alone. Additionally, given that we expect the inflationary pressures to maintain beyond 2024 – they may ease, but the baseline of sub-2% inflation is a distant hope.


Key Global Crises and Their Impact on the Supply Chain

There have been several critical impacts on the Insurance market either directly or indirectly and the first major impact was BREXIT. Setting aside the arguments for and against, one of the largest issues BREXIT created was the flow of skilled or skill-able workers from EU countries. This has left a clear gap in UK Bodyshop’s, with an ageing workforce and any investment coming through likely to take years to pay off, meaning roles just are not filling as quickly as repair centres would like. Add to this the need for new training in EV’s, with only certified specialists able to work on them and you have a gap in skills which will continue to impact cycle times. When we analyse the ONS Motor Repair Job Listings statistics for 2023-23 [7], year on year there has been a 20k reduction in vacancies, which sounds like good news. However, this is coupled with a 25k reduction in available jobs, which leads us to conclude that the motor body repair industry is, at best, no better off than it was previously in terms of insurer choices, resource, and capacity.

The post-COVID-19 pandemic economic crisis is a further drag, with an estimated cumulative £310-£410bn pandemic cost, and the government spending on the pandemic was £179bn higher than planned for the financial year 2020-21 as outlined in the Parliament research briefing on public spending during the pandemic [8]. The impact of this fiscal shock on the UK economy is well summed up in the research briefing paper from the House of Commons Library: “Even when the immediate economic shock of the pandemic does eventually dissipate, the crisis may result in permanent damage, or “scarring,” to the economy.” [9] In addition to the multiple economic impacts, production in the motor repair global supply chains are only just catching up. Whilst this impact is slowly coming to a head from a parts perspective, costs will continue to be unstable and play a part in the inflationary impacts.

The war In Ukraine compounded impacts on fuel, energy, and parts. But what is interesting is how the supply chain has since reorganised itself. For example, wiring looms for German cars, such as Volkswagen were made in Ukraine, which caused major constraints when the War started, but they have since moved production to North Africa and some of Eastern Europe. Whilst this has proved to be beneficial, it looks as though the full benefit has been curtailed by the effects of the attacks on Red Sea shipping, so we anticipate further delays until the Israel / Hamas conflict concludes.

The conflict in GAZA has completely disrupted container shipping with MSC, CMA CGM, Maersk, and Hapag-Lloyd all pausing the transit of vessels through the Red Sea. To give an indication of the disruption, these account for numbers 1, 2, 3, and 5 of the top five container shipping companies. The re-routing adds approximately 10 days in each direction to journeys and a huge amount of fuel cost from both the longer distance and the need to move quicker to minimise delays. Automotive manufacturers such as Tesla, Volvo and Suzuki have also stated a suspension in some production in Europe due to a shortage of components due to the attacks in the Red Sea. This means that not only will the costs of products sourced from impacted regions rise, so too will the time it takes for them to arrive. It will also have an impact on the prices of new vehicles, with some reports expecting 2024 new car prices to rise dramatically, especially when you add in the cost of new technology for EV's.


To tie in with these parts constraints, based on an article by ING [10], there is an expectation that auto parts manufacturers will also need to pivot to support EV demand, which will impact both cost and availability of ICE OE vehicle parts and push up the price of non-OE. This is backed up by the Economist Intelligence Unit which has stated in their 2024 outlook that whilst ICE sales will continue to slow, EV’s will have an expected expansion of around 21%. [11]

The knock-on of all these macro-economic issues are the local inflationary impacts. Whilst the political noise is that inflation is now reducing, there are two key points to bear in mind: 1) even if inflation is reducing, it’s still embedded within prices and borrowing rates today (i.e. inflation has not gone away), and 2) as we saw from December 2023’s ONS data inflation rose again after having fallen (i.e. the situation is still volatile). To manage the volatility and impacts Insurers need to look across their wider operations and try to understand if the increases in costs they are seeing are due to underlying or inherent inflationary pressures and take appropriate mitigating actions.

Moreover, 2024 will be a year that sees landmark elections with sixty-five elections running globally across 2024, giving 40% of the global population a chance to vote. The most impactful for the UK is that both the US and the UK are potentially happening in the same quarter. The last time this happened was 1964 at the height of the Cold War. The potential impact of this could be the potential strain on the financial markets as certainty in future leadership has a large sway, especially the US presidency. The obvious point here being that the Global Economy does not react well to volatility and uncertainty and these elections are likely to increase both.

The compound effect of these continued and increasing global issues is likely to be continued inflationary pressures in the insurance sector due to the major impact they have on supply chains. We are unlikely to see a change in this uncertain landscape in 2024 as some of these factors have been present since 2018, the impact of which is still seen today. That is why insurers need to focus on their supply chain to understand where the impacts are and evaluate what they can do to mitigate some of the impacts because these factors are no longer outlier impacts but the norm, or as we have quoted, the economic storms of 2019-23 are now just the weather.       


What Does All This Mean?

In simple terms, if you are not acting, you need to act; if you have been taking action, more will be needed. Based on our discussions, we understand that some of the best performers have increased their focus on ensuring they can differentiate the customer journey of 1st and 3rd parties. For example, splitting 50/50 1st and 3rd party work means that only half the vehicles will have courtesy car attachments. It also means that by differentiating what work goes where you are in a better position to closely monitor performance and reward the repair supply chain based on how good they are.

Even Claims Management providers in the market are adapting the way they sell their offerings. With companies like FMG and Davies Group demonstrating the benefits of using a holistic solution with repair, credit hire/mobility, recovery, and legal services all available under one group banner driving consistent expertise across the claims journey. Other principal providers are rumoured to be exiting the service space to focus on core areas such as repair. Procurato believe that those with end-to-end services are likely to dial up their holistic offerings, whilst we anticipate TPA’s will step back and focus down on repair.

The market continues to produce anomalies, especially Steer Automotive Group which continues to show the repair market that they are a force to be reckoned with, with a further seven acquisitions in 2023, the most recent being the acquisition of AW Accident Repair, meaning they account for 5% of the UK’s repair capacity. Since this acquisition, the fragmented collision repair market, further strengthening Steer have partnered with Oakley Capital with the stated intention of “growth within the fragmented collision repair market, further strengthening … facilities, development and training, … and EV repair capability.” [12].

In summary, the proactive insurers are asking themselves the extent to which they are set solidly in 2024 to deliver a sub 100% COR and the role that their claims supply chain needs to play in that activity – specifically focusing on reducing accident repair costs. Looking at seldom reviewed supply chains like Recovery will be key, as the predominant focus of yesteryear was always on repair i.e. parts and labour which are all impacted by the global events. Looking at areas receiving lesser impact from global events is crucial.

The Procurato view is that pricing your way out of this market alone is a high-risk strategy. What is more, the very best is already advancing quickly to make sure that at the very least in 2025, they are not reliant on premium increases to create renewal certainty and growth. Nothing will magically improve and there is no silver bullet to tackle all the problems outlined, what is required, is a need to differentiate yourself from your competitors and find new ways, outside of policy pricing, to reach optimum COR.



[2] ABI

[4] EY

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